Global Purchasing and Supply Management

Dedication

Contents

Preface

Foreword

Acknowledgments

I FROM BUYING TO STRATEGIC CONTRIBUTOR

1 THE ROLE OF THE PURCHASING AND SUPPLY FUNCTIONS

1. PURCHASING OBJECTIVES

2. IMPACT ON PROFITABILITY

3. CONTROLLING THE PROCESS

4. THE BUYING JOB

4.1 The Accountability Concept

4.2 Buying Influences

5. CHANGING DEMANDS ON THE JOB

5.1 Socioeconomic Programs

6. PURCHASING REDEFINED

2 EVOLUTION OF PURCHASING AND SUPPLY MANAGEMENT

1. SPAN OF CONTROL

2. CENTRALIZED VERSUS DECENTRALIZED DEPARTMENT

2.1 Advantages of Centralization

2.2 Advantages of Decentralization

2.3 Titles Used in Purchasing

2.4 Where Should Purchasing Report?

3. THE MATERIALS MANAGEMENT ORGANIZATION

3.1 Why Do Some PMs Not Embrace MM?

4. REENGINEERING THE PURCHASING ORGANIZATION

4.1 Organizational Structure and Relationships

4.2 Authority to Commit Independent of the Organization

5. DAY-TO-DAY VERSUS LONG-RANGE BUYING

6. “PURCHASING AND SUPPLY MANAGEMENT” COMES OF AGE

3 STRATEGIC PURCHASING SUPPLY INITIATIVES

1. SELECTION OF STRATEGIES LEADS TO ACTION

2. SUPPLY BASE MANAGEMENT STRATEGY

3. SUPPLY PLANS TO CONTROL MAJOR COMMODITIES

4. SEEK LEVERAGE WITH BUYING TEAMS

5. TACTICS TO CARRY OUT STRATEGIC PLANS

6. EMERGING STRATEGIC OPPORTUNITIES

II CREATING THE VISION

4 THE PURCHASE ORDER PROCESS

1. FUNDAMENTAL STEPS TO COMPLETE A PURCHASE

1.1 Editing the Requisition

1.2 Issuing the Purchase Order ( PO)

1.3 Blanket Orders.

1.4 Use of Blanket Orders for Repetitive Purchases

2. TERMS OF PURCHASE

2.1 Shipment Terms

2.2 Change Notices

3. COMPLETING THE PURCHASE

3.1 Follow Up and Expediting

3.2 Receiving and Price Checking

4. ADDITIONAL CONSIDERATIONS FOR INTERNATIONAL PURCHASES

5. ELECTRONIC PURCHASE ORDER PROCESS

5.1 Purchasing Cards/ Procurement Cards

5.2 E- Procurement or e- Commerce

5.3 Direct Purchases and e- Commerce

5 BUYING FROM THE RIGHT SUPPLIER

1. SOURCE SELECTION

1.1 Request for Quotation ( RFQ)

1.2 Buyer’s Checklist for Selecting New Suppliers

2. TEAMWORK AND COOPERATION

3. QUALIFICATION OF NEW SUPPLIERS

3.1 How Many Sources of Supply?

4. SOURCES OF SUPPLIER INFORMATION

5. SUPPLIER FINANCIAL STABILITY

5.1 Credit Rating Reports

5.2 Financial Statements

5.3 Ratios as Guides

6. SEARCH FOR LOW-COST SUPPLIERS

6.1 Computing Total Landed Cost of Acquisition

6.2 Post- Selection Supplier Evaluation

6.3 How Valid Are These Ratings?

6 CREATING A GLOBAL VISION

1. THE UNITED STATES AND WORLD TRADE

1.1 The U. S. Trade Deficit

1.2 North American Free Trade Agreement

2. BILATERAL AND MULTILATERAL TRADE AGREEMENTS

2.1 Regional Trade Agreements

3. THE PURCHASING ROLE

3.1 The Expanded Role into Global Purchasing

3.2 Emergence of the Global Corporation

3.3 Expansion of Countertrade

3.4 Offshore Sourcing Issues

4. HOW TO CONDUCT A GLOBAL BUYING EFFORT

5. ENTRY STEPS TO CLEAR CUSTOMS

5.1 Immediate Delivery ( I. D.) Entry

5.2 Types of Transportation Entries

5.3 Customs Duty Valuation

5.4 Examination

5.5 Country of Origin Marking

5.6 Certificate of Origin

5.7 Appraisement

5.8 Liquidation

5.9 Methods of Payment

5.10 Letter of Credit

5.11 Banker’s Acceptance

6. GENERALIZED SYSTEM OF PREFERENCES

6.1 Harmonized Tariff Schedule of the U.S. Annotated (HTSUSA)

7. PROGRAMS BENEFITING THE IMPORTING BUYER

7.1 Benefits from Foreign Governments

7.2 Foreign “ Free Trade” Zones and Sub zones

7.3 Duty Drawback Savings

8. THE INTERNET AND GLOBAL INFORMATION NETWORKS

7 BUILDING RAPPORT WITH SUPPLIERS

1. SUPPLIER PARTNERING RELATIONSHIPS

1.1 Implications to the supply organization

2. CHANGE “BACKDOOR” SELLING TO “FRONTOFFICE” COLLABORATION

2.1 Overcoming “ Backdoor” Behavior

3. CONFLICT RESOLUTION: WORKING WITH OTHERS

3.1 Taking positive action

3.2 A Time to Do Nothing!

4. ETHICAL ISSUES IN BUYING

4.1 Where to Draw the Line

4.2 Buying Practices

4.3 Gifts from Suppliers

4.4 Lunches and Entertainment

4.5 The Ethical Double Standard

5. DO’S AND DON’TS OF DEALING WITH SUPPLIERS

8 QUALITY AS A COST IMPROVEMENT TECHNIQUE

1. QUALITY DEFINED

2. SIX-SIGMA AND TOTAL QUALITY MANAGEMENT

2.1 Cost of Quality

3. STATISTICAL PROCESS CONTROL

4. SPECIFYING WHAT TO BUY

4.1 Efforts to Ensure Quality Through International Standards ( ISO 9000 Series)

4.2 Cooperation with the Quality Function Pays Off

5. WORKING WITH SUPPLIERS TO MANAGE QUALITY

5.1 Certification Clause

5.2 Quality and Reliability Clause

5.3 Early Supplier Involvement

5.4 Qualification and Pre- qualification

9 PURCHASING’S STRATEGIC APPROACH TO INVENTORY MANAGEMENT

1. DRIVERS OF INVENTORY

1.1 Types of Inventory

1.2 Who controls inventory?

2. GOALS OF INVENTORY CONTROL

3. ASSET MANAGEMENT ( CONTROL OF INVENTORY COST)

3.1 Record Keeping Systems

3.2 Methods of Inventory Valuation

3.3 Financial Analysis of Inventory

3.4 Inventory Turnover

3.5 Physical Control of Inventory

4. DECIDING WHEN AND HOW MUCH TO BUY

4.1 Economic Order Quantity

4.2 Order Quantity Methods

4.3 Statistical Reorder Point

4.4 Time- Phased Order Point

4.5 Materials Requirement Planning

5. LEAN MANUFACTURING AND JUST-IN TIME

6. PROCESS IMPROVEMENT AND INVENTORY

6.1 Leadtime as an Inventory Driver

6.2 Quality and Lot Size as Inventory Drivers

6.3 Information Provides Opportunity

7. PURCHASING’S ROLE IN SUPPORTING INVENTORY OBJECTIVES

7.1 Supplier- Managed Inventory

10 PROACTIVE TECHNOLOGY MANAGEMENT STRATEGY FOR COMPONENT OBSOLESCENCE

1. THE CHALLENGE OF OBSOLESCENCE

1.1 Obsolescence as an Incurable Disease

1.2 The Ideal Obsolescence Management System: “Clean Sheet of Paper” Design

1.3 Conflicting Challenge: Managing Obsolescence and Change Issues while Optimizing Inventory

2. OBSOLESCENCE MANAGEMENT SOFTWARE: HOW IT WORKS

3. THE LIFE CYCLE CONCEPT

4. BENEFITS OF A SOUND OBSOLESCENCE MANAGEMENT PROCESS

5. SO WHO NEEDS OBSOLESCENCE MANAGEMENT TOOLS?

5.1 The Old Way Versus the New Way...

5.2 How to Win a Spares Contract and Lose your Shirt!

5.3 How to Win a Spares Contract and Win Big!

6. THE FUTURE AND THE WAY FORWARD... HOW TO SELECT THE RIGHT TOOLSET

11 BUYING AT THE “RIGHT” PRICE

1. HOW PRICES ARE SET

1.1 Market- based and cost- based prices

2. PRICE AND COST ANALYSIS

2.1 An Exercise to Compute Price of Paint

2.2 Cost analysis

2.3 Cost Analysis Tips for Buyers

2.4 Break- even Analysis

3. MEETING TARGET COSTS FOR NEW DESIGNS

3.1 Price, Cost, and Value Relationships

4. PRODUCER PRICE AND CONSUMER PRICE INDEXES

4.1 Your Company Market Basket Index

5. USE OF STANDARD COST

6. PRICE FORECASTING

7. STRATEGY OF HEDGING VERSUS FORWARD BUY

7.1 Ways to Minimize Risk

7.2 How a Futures Hedge Works

12 NEGOTIATIONS

1. CREATING THE NEGOTIATION ENVIRONMENT

2. NEGOTIATION STRATEGY

2.1 Address Alternative Solutions to Gain Concessions

3. IMPLEMENTING TACTICS AND NEGOTIATION CHECKLIST

3.1 Negotiation Checklist (“ Do’s and Don’ts”)

4. NEGOTIATION FUNDAMENTALS FROM A GLOBAL PERSPECTIVE

4.1 Canadian Culture

4.2 Mexican Culture

4.3 Negotiation Sensitivity

4.4 Avoiding the Pitfalls — How to Blow It!

5. A NEGOTIATION SETTLEMENT

13 GLOBAL SUPPLY DEMANDS TECHNICAL BUYING COOPERATION

1. ORGANIZING TO ACHIEVE TECHNICAL COMPETENCE

2. THE DESIGN ENGINEERING PROCESS

2.1 Need for Follow-up of Design Programs

3. THE REENGINEERING PROCESS

4. STRATEGIC TECHNICAL SUPPORT ACTIVITIES

4.1 Manage Conflict with Design Engineers

5. REVIEW OF THE TECHNICAL BUYER AND PURCHASING ENGINEER JOBS

5.1 The Role of Purchasing Engineers

6. MAKE-OR-BUY STUDIES

6.1 Purchasing’s Role in Make-or-Buy

14 USING COST REDUCTION TECHNIQUES

1. SIX-SIGMA METHODOLOGY

1.1 Value and Engineering Analysis

1.2 Overcoming Resistance to Change

2. REDUCING COMPLEXITY - STANDARDIZATION AND SUBSTITUTION

2.1 Simplification

3. OUTSOURCING AND LEASE- VERSUS- BUY

3.1 Lease- Versus- Buy

3.2 Methods of Acquisition

3.3 Other Leasing Considerations

3.4 Tax Advantages

4. USE OF THE LEARNING CURVE

4.1 How the Learning Curve Works

5. TRACKING COST SAVINGS RESULTS

15 LEGALITIES IN BUYING

1. KEY ELEMENTS OF EVERY CONTRACT

2. THE UNIFORM COMMERCIAL CODE

3. CONTRACT TERMS AND CONDITIONS

3.1 Word Processing Templates

3.2 Warranties

3.3 Epidemic Failure Clause

3.4 Liability Insurance

3.5 Force Majeure

3.6 Contract Cancellation or Termination

3.7 Indemnification of Buyer

3.8 Patents, Proprietary Information, and Disclosure

3.9 Other Suggested Purchase Order Clauses

4. SOCIOECONOMIC AND ENVIRONMENTAL LAWS

5. ANTITRUST LAWS

6. UNITED NATIONS CONVENTION

7. GENEVA AGREEMENT ON TARIFFS AND TRADE

8. GLOBAL TRADE BARRIERS

8.1 Boycotts

8.2 Cartels and Closed Countries

8.3 Counterfeiting and Piracy of Property

8.4 Import Customs Laws and Regulations

8.5 Unfair Pricing and Protectionism

8.6 Antidumping Duties

8.7 Countervailing Duties

9. BATTLE OF THE FORMS

9.1 Dispute Settlements

9.2 Alternative Dispute Resolution

9.3 Mediation

10. FOREIGN CORRUPT PRACTICES ACT

11. THE BUYER AND LEGAL ISSUES

16 SERVICES AND MRO BUYING

1. BUYING IN SERVICE ORGANIZATIONS

1.1 Distribution Buying

1.2 Merchandise ( Retail) Buying

1.3 Hospitals and Health Maintenance Organizations

1.4 Schools and Educational Buying

1.5 Government Procurement and Military Buying

2. CO- OP AND CONSORTIUM BUYING

2.1 Consortium Purchasing

3. BUYING FOR MAJOR PROJECTS

3.1 Construction Contracting

3.2 Recycling and Trash Removal

3.3 Use of Bids

4. SYSTEMS CONTRACTS FOR MRO SUPPLIES

5. INSTANT CASH AND THE PROCUREMENT CREDIT CARD

5.1 The Procurement Card

5.2 “ Smart Cards”

17 TRANSPORTATION STRATEGIES TO REDUCE LOGISTICS COSTS

1. DEVELOPMENTS WITH A PROFOUND IMPACT ON TRANSPORT

2. SIGNIFICANT BUYING ISSUES

2.1 Freight Consolidation

3. MODES OF TRANSPORT

4. TRANSPORTATION CONTRACT CONTENTS

4.1 Ocean Carriage Contracts

4.2 Containers

4.3 Insurance

4.4 Cost Analysis of Motor Carriage Transportation

4.5 Negotiating Rates with Deregulated Carriers

5. COMMERCIAL TERMS OF SALE

6. CLAIM SETTLEMENTS AND ADJUSTMENTS

7. AUDITS OF FREIGHT BILLS

8. THIRD PARTY LOGISTICS

III LEADING AND MANAGING TO FULFILL THE VISION

18 IMPROVING MANAGEMENT OF THE PURCHASING FUNCTION

1. APPLICATION OF MANAGEMENT PRINCIPLES TO PURCHASING

1.1 Theory “ X” and “ Y”

1.2 Theory Z

2. APPLY SOUND THEORY TO PURCHASING

3. EFFECTIVE COMMUNICATIONS, BOTH EXTERNAL AND INTERNAL

3.1 Productive Work Habits

4. NEED TO SUPPORT EDUCATION AND BUYER DEVELOPMENT

4.1 Pursue Buyer Development Programs

4.2 Certified Purchasing Manager Program

4.3 Accredited Purchasing Practitioner Program

5. USE OF JOB DESCRIPTIONS AND A PURCHASING MANUAL

5.1 Develop and Use a Purchasing Manual

19 MEASUREMENTS OF PURCHASING PERFORMANCE

1. VARIOUS KINDS OF MEASUREMENTS USED

1.1 Internal Audit

1.2 Management by Objectives

2. INDICATORS OF PURCHASING EFFICIENCY

3. BENCHMARKING

4. THE TREND MEASUREMENT SYSTEM

5. STANDARD COST AS A PERFORMANCE MEASUREMENT

6. HOW THE PURCHASING DOLLAR IS SPENT

6.1 Computing a Company’s Productivity

7. REPORTS TO MANAGEMENT

8. SUPPLY MANAGEMENT PROCESS MEASUREMENT

20 A LOOK INTO THE FUTURE

1. SIGNIFICANT TRENDS

1.1 The Realities of a Global Economy

1.2 Buyers Should Avoid Chasing Low Cost Labor

2. CHANGES IN THE PROFESSION

2.1 Strategic Development Becomes Critical

2.2 Tactical Methods Remain Important

3. FULFILL THE VISION!

Appendix

Index

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